🎰 How these submarkets are beating the odds

👋 Hello, Best Ever readers!

In this week’s newsletter, office submarkets defy the odds, the Fed issues a warning, tenants stay put, and pref equity gets a shakedown.

But first … some housekeeping:

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Today’s edition is presented by Viking Capital, which is excited to announce its latest investment opportunity, Peoria Gateway, a luxurious 200-unit apartment community set to debut in 2026.

Let’s CRE!

🗞️ NO-FLUFF NEWS
CRE HEADLINES

Fed Warning: Fed Chair Jerome Powell says Trump's new tariffs are "significantly larger than expected" and could cause higher inflation. Trump has urged Powell to cut interest rates, accusing him of "playing politics," while Powell says the Fed will delay rate decisions until tariff impacts become clearer.

Insurance Wars: Lender-imposed insurance is threatening small landlords, costing up to 10 times market rates and risking loan defaults. Over 10% of CMBS-backed properties were in distress by late 2024, while apartment insurance costs surged 132% in 2023 compared to pre-pandemic levels.

Rental Rebound: Apartment absorption rose 35% in Q1 2025, with 137,750 units absorbed versus 140,950 delivered. Midwest markets led rent growth while Sunbelt markets declined, and luxury units struggled with 11.4% vacancy and minimal growth compared to mid-priced units' 1.4% rent increase and 7.4% vacancy.

Financing Freeze: The HUD's $1.4 billion Green Retrofit Program faces an uncertain future, with conflicting reports about its termination. Without this funding, multifamily developers can't proceed with energy upgrades, stalling projects and raising costs.

Costly Upgrades: Office build-out costs are rising globally due to labor shortages, inflation, and material price increases in 75% of markets. The North American average is $287 psf vs. $171 psf globally, with New York City being the most expensive worldwide.

🏆 TOP STORY
WHERE OFFICE IS THRIVING, AND WHY

Despite hybrid work models and high capital costs that have impacted office demand nationwide, certain submarkets are still thriving, according to a new report from Newmark Research. The gap between high-performing and struggling office submarkets continues to widen, the report says, with clear winners emerging across the country.

• Trophy buildings in top-performing submarkets average just 10.5% vacancy compared to 16.5% for Class A properties, significantly outperforming the broader market averages of 13.0% and 17.9%, respectively.

• New York's Far West Side exemplifies the office turnaround, transforming from 3.5 msf of underutilized space to over 16 msf of new office development, attracting major tenants, including BlackRock, Pfizer, Meta, and HSBC.

• Other thriving office markets include Chicago's Fulton Market, Las Vegas's Southwest submarket (8.3% vacancy, the lowest among surveyed submarkets), and Manhattan's Park Avenue, which all share characteristics of central locations, high walkability, diverse amenities, and proximity to where executives live.

Flight-to-quality remains a primary driver behind the office market's recovery, with trophy rents commanding 25-40% premiums over Class A within premier submarkets. Location has become increasingly critical, as centrally positioned urban cores with easy access via major freeways and commuter rail stations outperform more remote areas.

WHAT IT ALL MEANS

Private investors are targeting overleveraged buildings at reduced prices to reset debt and offer competitive rents while institutional investors largely remain on the sidelines until prices stabilize and leasing volumes improve. Experts suggest that a sound strategy in this environment is for investors to target early-stage prime submarkets and discounted trophy assets in key locations. As the market continues to evolve, buildings in top-performing locations with high-quality amenities and diverse tenant bases will continue to outperform their peers.

🏘️ VIKING CAPITAL
INTRODUCING PEORIA GATEWAY

Viking Capital’s Peoria Gateway is a luxurious 200-unit apartment community set to debut in 2026 in the rapidly growing city of Peoria, Arizona. Designed with modern luxury, this premier development is a top-tier Class A property, offering state-of-the-art, resort-style amenities that elevate the living experience in a supply-constrained rental market surrounded by solid job growth.

• Why Peoria? This vibrant community along the growth corridor to Phoenix is experiencing a clear housing shortage, especially for newer, amenity-rich rentals. Limited supply, growing demand, and a rising population create ideal conditions for strong absorption, premium rents, and long-term appreciation.

• Why new development? Peoria is facing a clear housing shortage, especially when it comes to newer, amenity-rich rentals. This market gap presents a compelling opportunity for investors: limited supply, growing demand, and a rising population create ideal conditions for strong absorption, premium rents, and long-term appreciation. Strategic new development in this environment isn’t just smart — it’s high-yield.

Partnering with a developer with a proven track record, Viking Capital continues its commitment to identifying low-risk opportunities that preserve investor capital while maximizing long-term growth potential. Backed by its own track record of $800 million in assets and over 5,000 units, Viking Capital is your path to building wealth through real estate.

To learn more about Viking Capital and the Peoria Gateway investment opportunity, which is available for you right now, click the button below and get started today.

💰 CRE TRENDS
TENANT RETENTION REMAINS STRONG

Apartment retention has reached its highest level in three years and has consistently stayed 300 bps higher (52-58%) than pre-COVID levels, according to rental housing economist Jay Parsons. Meanwhile, single-family rental turnover has dropped from mid-30% to mid-20%. 

Parsons cites multiple factors driving this trend, including:

• Enhanced Resident Experience: Property managers implemented new engagement strategies during the pandemic that proved effective and continued as competition increased.

• Technology Improvements: Online renewals and gamification tools reduced friction in the renewal process compared to traditional paperwork methods.

• Housing Cost Differential: The current monthly premium to buy vs. rent is approximately $1,600 for apartment renters and $1,000 for SFR renters

• Persistent Low Consumer Confidence: Consumer confidence remains structurally lower than pre-COVID levels, creating a "freezing effect" where uncertainty leads renters to maintain their current living situations

This trend has been consistent across all property classes (A, B, C), building ages, and markets — including those with high supply — suggesting a potential "new normal" of lower turnover that may persist, Parsons says, even when home sales eventually rebound.

🎙️ THE BEST EVER CRE SHOW
THE TRUTH ABOUT PREF EQUITY

Preferred equity has become increasingly common in multifamily investments, particularly as a solution for properties facing financial challenges. This capital sits ahead of original LPs in the capital stack but behind the primary debt, offering investors higher returns (typically around 15%) in exchange for this priority position.

Andrew Cushman, the founder of Vantage Point Acquisitions who has syndicated nearly 3,000 multifamily units across the Southeast, joined the Best Ever CRE Show this week, where he fired a few shots at the pref equity trend.

"The biggest problem is a lot of these [pref equity raises] are coming out, and they're not disclosing what they're using it for," he explains. "If a property can't meet its current obligations, and then you stick a big chunk of equity on top of it that requires a 15% return, how is that property going to ever pay that off?"

Cushman says he WOULD consider pref equity investments:

• When it solves a specific, solvable problem — for example, when it provides the additional capital needed to pay down a loan balance to secure favorable long-term financing with lower rates, or

• When the property maintains adequate equity cushion after adding the preferred equity, ensuring total debt plus pref equity remains well below the property's current appraised value.

He says he WOULD NOT participate in pref equity:

• When sponsors aren't transparent about how the funds will be used or are simply delaying inevitable foreclosure, or

• When returns are structured unrealistically (full 15% current payments) instead of split between current payments and accrued interest (like "5% now and 10% catch-up at the end").

Pref equity isn't inherently problematic, Cushman says. But it requires thorough due diligence to ensure the elements align with realistic property performance expectations so you, the investor, can determine whether a pref equity opportunity represents a solid investment or merely postpones an inevitable loss.

🎙️ For more from Cushman on pref equity, his intense due diligence process, and more, listen to his full episode here.

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